Asset allocation
Maximise your returns while keeping risk under control

If you're looking to minimise risk and maximise returns, then asset allocation is the place to start.

What's asset allocation? It's simply the way a managed fund combines different kinds of assets to create a portfolio. And it can have a huge influence on both investment performance and risk.

Numerous studies have shown that asset allocation is a key driver of managed fund performance, playing a much larger role than individual asset selection.* In other words, the proportion of a fund's capital invested in shares or property can be much more important than the individual shares or property investments it holds.

By choosing a fund with the right mix of growth assets - like shares and property - and Defensive asset - like cash and fixed interest - you can achieve the right balance between risk and return for your investment time-frame and individual investor profile.

The asset classes

Today's managed funds invest across a vast range of different assets, from Canadian infrastructure to Swiss government bonds. But in general, diversified funds focus on four main asset classes which can be divided into two groups - income and growth:

  • Cash: this is a highly secure but lower-return investment.
  • Fixed interest: these include investments like corporate and government bonds. They provide a predictable, regular income, but have limited potential for capital growth.
  • Property: investments from both Australian and international property funds provide a combination of income and moderate capital growth potential.
  • Shares: Australian and international shares have the potential for higher growth over the long-term, but with more volatility along the way.

The general rule is this: the higher an asset's growth potential over the long term, the greater the short-term risk:

Getting the right mix

So how so you choose a managed fund with the right asset allocation for the return you're after? It all depends on your investment timeframe and your appetite for risk.

It makes sense that the longer you have to invest, the more time you have to ride out the ups and downs (or risks) of higher-growth investments, such as shares and property.

But you need to consider how much risk you're comfortable with as an investor.

In general, your aim as an investor is not simply to get the highest possible return, but to get the right balance between risk and return for your individual risk profile.

Remember, too, that it is your overall portfolio that matters. You need to take all of your assets into account - including the family home and any shares you might own.

So if you are just starting out, you might choose a diversified managed fund that matches your target asset allocation. But if you already have a significant pool of assets, you might prefer a sector-specific fund that complements your other investments.

Asset allocation made easy

InvestSMART makes it easy to find a managed fund that matches your target asset allocation. Simply:

  1. Visit our fund search tool.
  2. Click Advanced Search.
  3. Choose an asset mix from the Sector/Asset Class list. For example, to search for a diversified growth fund, choose Multisector growth.
  4. Click Find a Fund, then view the results. When you've found a fund you're interested in, click the fund name to view a detailed fund profile, showing the precise asset allocation on the last reporting date.

Next steps

  1. Learn more about your risk profile.
  2. Learn about diversified and sector-specific funds.
  3. Compare and research managed funds.

Start saving now

It only takes minutes to switch your existing managed funds or life insurance policy to InvestSMART, but you can enjoy the savings year after year:

  1. Fill in our fast online form (for managed funds)
    Download our Broker form (for insurance)
  2. Print the form, then sign it and send it by:
    1300 880 260
    InvestSMART Financial Services
    Reply Paid 4477
    Sydney NSW 2001

  3. You'll start saving straight away. And once every year, on the anniversary of when you switched to InvestSMART, you'll receive your trail commission rebate, either as a cheque or via electronic fund transfer (EFT).
  4. To receive your TrailCap payments via electronic fund transfer (EFT) to an Australian bank account - just complete the EFT section in the online application form.
    If you have already nominated InvestSMART as your fund broker and have been receiving TrailCap cheques from us but would rather your money is deposited directly into your bank account, you can let us know your EFT details in the InvestSMART EFT payments form.